The Effects of Fuel Costs on New Electricity Generators in the United States

Laura Grant and Alexey Yukhov

Abstract

We estimate the effect of the natural gas fuel cost on the choices for a new power generator, the energy source gas, wind, or solar and its capacity. Higher fuel costs increase odds of more renewable capacity, as opposed to gas, with large, significant effects for both wind and solar. As the U.S. has yet to implement nationwide carbon policies, we use fuel cost to proxy for a carbon tax. Our scenarios of $10-to-$50 per ton of carbon dioxide (CO2) reduce emissions from new generators by 22 to 47 percent, equivalent to 2 to 4 percent of total electricity emissions.

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